CRA expands its EIFEL webpage to provide more detailed guidance on the financing (non borrowing-lending) IFE and IFR rules

A(e) of the interest and financing expenses (IFE) definition in s. 18.2(1), in highly simplistic terms, may add to a taxpayer’s IFE an amount paid or payable by it in a year that would otherwise be deductible in computing its income, as a result of an arrangement entered into in relation to a financing of it, that may reasonably be considered to increase its cost of funding with respect to the financing. Conversely, B(a) of the IFE definition may reduce the IFE by an amount received or receivable that was included in the taxpayer's income for the year under an arrangement entered into in relation to a financing of the taxpayer, where the amount can reasonably be considered to reduce the cost of funding with respect to the financing.

In early June, the CRA significantly expanded an EIFEL webpage to discuss these rules, as well as the mirror image rules under A(e) and B(a) of the interest and financing revenues (IFR) definition.

CRA makes a determination as to whether the arrangements, in economic substance, result in a cost of financing or a reduction thereof to the taxpayer under the IFE rules and, conversely, regarding the IFR rules, whether they represent, in substance, a return on a financing provided by the taxpayer. In this regard, CRA provides some helpful examples.

For instance, in the case of Canco factoring its accounts receivable to a factoring company at a 10% discount to the receivables' face value without recourse, CRA indicates that the 10% discount would generally be included in Canco's IFE under A(e). However, from the factoring company's perspective, the transaction constitutes a purchase of trade receivables and does not represent a provision of capital by it to Canco in exchange for compensation for the time, risk, and deployment of capital involved, with an expectation of repayment at some future date. Accordingly, from the factoring company's perspective, the earned discount would not be included in its IFR.

The second example involves a Canco borrowing in U.S. dollars at a floating interest rate from a Canadian bank and hedging its risk with respect to the floating interest rate by entering into a derivative with an arm's length counterparty. CRA indicates that the hedging costs generally would be an addition to Canco’s IFE under A(e) or, if there was a receipt under the derivative, then this would reduce its IFE under B(a). However, the amounts received by the hedging counterparty would not be in respect of a return on a loan or other financing and would not constitute IFR to it.

Neal Armstrong. Summaries of Supplemental instructions and guidance for filing under the excessive interest and financing expenses limitation rules, CRA Webpage, 3 June 2026 including (in relation to the June 3, 2026 additions) s. 18.2(1) – IFE – A(a), A(e), B(a) and IFR – B(a).